There will always be a need for licensees, as long as financial advisers need an Australian financial services licence authorisation to operate.
However, to ensure relevance and longevity, the licensee business model must be based on more than a mandated requirement. It must also continuously evolve to keep pace with changing adviser needs and expectations.
For too many advisers, it hasn’t stacked up and now the cost is real with the removal of subsidies, leading to greater dissatisfaction and scrutiny.
This has created opportunities for alternative service providers.
These utility players are focused on core traditional dealer services like licensing, brokerage and compliance, which are fast becoming commoditised.
Instead, the licensee that prevails will ensure their focus is on adding value in areas like human resources, business coaching and technology solutions.
This is the territory that advisers care most about.
While foundational dealer services remain essential, they don’t drive adviser satisfaction or excitement.
Yet, if they’re not done right, it’s a huge source of dissatisfaction.
Traditional dealer services are merely a ticket to the game. They’re “hygiene” factors. Excellent hygiene is a given so it’s difficult to charge top dollar for it, highlighting the importance of scale to push down costs.
The Apple iPhone provides a useful analogy. At the core, it’s a smart phone. It enables people to make and receive calls, send and receive emails, and access the internet. But that’s just the beginning. People can also take photos, make videos, keep a calendar, play games, listen to music and much more.
Smart phones are a commodity but it is the iPhone’s design, functionality and innovation that drives sales, customer satisfaction and brand loyalty.
Similarly, licensing must be just the beginning. To attract and retain quality businesses, licensees must expand their value proposition.
They must demonstrate the capability and capacity to help advisers efficiently deliver quality advice and effectively manage and grow their businesses.
It is these two key areas – advice delivery and business optimisation – that is where the battle for advisers will be fought and won.
The planners’ planner
The role of the modern licensee can be summed up as the planners’ planner. In the same way that advisers assist their clients to understand their financial position; set and prioritise goals; develop and implement a strategy to achieve those goals; regularly review their needs; and stay on track towards their goals, licensees are ideally positioned to help advisers with business planning and strategy.
In addition to developing a robust advice framework, including the systems, processes and technology required for the efficient delivery of advice, licensees should have an effective business optimisation framework.
When followed, that framework should deliver efficiencies, cost savings and long-term sustainable growth.
It should help advisers manage their exposure to risk, and identify and capture opportunities. Ultimately, it should result in strong, profitable and valuable businesses.
After a period of structural change and fragmentation, the dust is settling in licensee land to reveal two large groups in AMP and Insignia Financial, a healthy mid-tier including a number of listed players, and a large number of small boutique AFSLs.
There’s likely to be ongoing consolidation in the middle, as players seek scale. Scale is essential for survival, not only for licensees but advice businesses too.
Already M&A activity among advice businesses is heating up and as businesses beef up, their needs will change. They will need greater support to manage operational challenges including technology integration, HR and recruitment, and branding and marketing.
Along this corporatisation journey, advisers have three main options: trial and error as they attempt to figure things out alone; engage an external consultant at significant expense; or lean on an existing business partner.
Savvy licensees have already read the tea leaves and are well progressed down the business optimisation path. They are ready to help advisers resolve their problems and secure their future.
Neil Younger is managing director of Fortnum Financial Group.
Interesting how the corporate players always talk about the importance of scale and corporatisation being the key to profitability. It is apparently never about employing competent people who actually do what they say they will do. Speaking with almost 30 years of experience and having worked at 4 of the larger AFSLs over that time, keeping the service promise and listening to what your clients (the advisers who pay the fees) need / want is the key to success and long-term profitability. It is never about maximising shareholder value which is the ultimate excuse for not acting in the best interest of those that matter most.
Hi Michael, I don’t think many would disagree with you. Having a business system and building efficiencies, creates time savings and profits. Time savings for each of your staff can and should be applied to deepening client relationships. Profits can be used for adding resources to further improve client servicing and engagement. This is the message behind transforming your practice to a business by enhancing the business system – deeper client engagement.
For 15 of my 25 years as a planner, we struggled to transform our practice to a business. Our Licensee provided us access to Xplan, PD Days and conference sessions on client engagement, compliance and technical sessions but never did we get trained on how to create a business system. Neil is spot on. Licensees and planners must corporatise with a business system that delivers efficiencies, outsources and measures the metrics to provide a growth plan. Only with a business system does your practice transform to a growth machine with compliance delivered through procedures & checklists.